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Wanted: Land. Now what’s the best way to finance?

When it comes to investing, land is a pretty solid choice. If you can buy it right, that is, and particularly so if you have the cash in hand to make the purchase.

Yet, land can be an investment that is rife with pitfalls. It can be easy to get emotional about a parcel, especially if it’s close to home or land that your family has farmed or ranched for generations. When these beloved acres come up for sale, sometimes our hearts get in the way of using common sense and rational thinking.

Couple that with competition from neighbors and urban investors, bloated bids and the pure desire to “win,” and it can be a recipe for financial disaster. Leverage your cash too far or dive too deep into debt, and it’s asking for trouble.

So what’s the best way to purchase land? How is land best financed? What should you keep in mind before making an investment? Is now a good time to buy, or is the market too hot? Can you make the payments? And is it a long-term investment that will reap real rewards for your family?

These are important questions to ask before even considering placing a bid on a chunk of land. I’ve rounded up some articles related to this topic. Check them out here and share in the comments section below if you have additional resources that would be relevant to this topic.

1. “Cash is king” by Randy Dickhut, accredited farm manager for Farmers National Company

Dickhut writes, “According to the USDA, total U.S. farm debt in 2018 dollars is at the highest level since 1984 (farmdoc.daily 8/17/18). One has to remember, land values, adjusted for inflation, are also at historic highs above the early 1980s levels. Agriculture has vastly increased asset values, which mostly offsets the rising overall debt levels.”

Wilson writes, “One of the most common questions about purchasing raw land is how to pay for it. There are numerous options to explore, including paying in cash, taking out a loan or even buying through seller financing. But what are the pros, cons and risks associated with each land financing method? We turned to three experts to find out.

Spencer says, “Financing a land purchase may be more complicated than the traditional home mortgage process, but you shouldn’t feel discouraged. Find other landowners to talk to for advice and discuss your options with potential lenders. A land purchase may be more complicated than the traditional home mortgage process, but you shouldn’t feel discouraged. Find other landowners to talk to for advice and discuss your options with potential lenders.”

Luthi explains, “There’s no single best land loan out there for everyone, so it’s important to shop around to find the best one for your situation. Before you do anything, develop a comprehensive plan for what you plan to do with the land. Doing this can help you determine what type of loan is best and how long you want the repayment term to be.

“Keep in mind, though, that some lenders may have limits on how much they’re willing to finance. Others may require a balloon payment, which is a large, one-time payment at the end of the loan term.”

According to the ERS, “In 2018, average U.S. farm real estate values remained high, reaching $3,140 per acre (a modest 0.1% decline in real terms compared to 2017). The resilience in average farm real estate values has persisted, despite recent declines in sector-level farm income that followed a record high in 2013.”

The opinions of Amanda Radke are not necessarily those of beefmagazine.com or Farm Progress.